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n l^fOi' 33. 



"That one Measure won the War" 

— John Skbkton WruaiAMs 

Comptroller qf the Currency 


Federal Reserve Act 










V. ^- 

:t C 

Copyright, 1919, by Robert L. Oweo 




THE Federal Reserve Act has now 
so completely demonstrated its 
value, and is so widely approved by 
the business men of America and of 
the world, that I have yielded to the 
suggestion that I should write a short 
sketch of its origin and principles, 
as a personal reminiscence, having no 
time at present to write a full history 
of this Act. 

The backbone of the Federal Re- 
serve Act is: 



1. A quick available supply of 
elastic currency for business men; 

2. Issued and controlled by the 

3. Against adequate security, con- 
sisting of gold, commodity or com- 
mercial bills or acceptances, and U. S. 

4. Under an interest charge high 
enough to prevent inflation by com- 
pelling contraction. 

In 1890 I had established the First 
National Bank of Muskogee, Okla- 
homa, was its president for ten years, 
and in 1893 witnessed the panic that 
took place at that time. This bank, 
like very many other banks, lost fifty 
per cent of its deposits within as 
many days because of the panic, 
which frightened people and caused 

them to withdraw their funds for 



hoarding throughout the United 
States and led creditors to strenu- 
ously press their debtors for settle- 
ment. Money suddenly appreciated 
in value, so that property measiured in 
money fell in value in some cases to 
half of its previously estimated value. 

This enabled thousands of cred- 
itors to take over the property of 
thousands of debtors on a basis that 
was ruinous to debtors, causing the 
bankruptcy of hundreds of thousands 
of people; causing a violent disloca- 
tion of business; and throwing out of 
employment vast numbers of people 
and inflicting injuries which required 
years to repair in the industrial and 
commercial life of the nation. 

Thousands of millions of dollars 
were lost and many more thousands 
of millions, the normal earnings of a 
prosperous, active people, were left 



unmade during the next five com- 
paratively idle years. 

This panic demonstrated the com- 
plete instability of the financial 
system of America and the hazards 
which business men had to meet 
under a grossly defective banking 
system. A very large part of the 
American people believed that the 
panic ensued from the industrial de- 
pression and shrinkage of values due 
to the demonetization of silver, and 
a violent agitation arose for the free 
and imlimited coinage of silver at 
"sixteen to one.'* 

The depression was, in fact, world- 
wide, and the purchasing power of 
many nations was affected. The 
McEanley Bill had just passed, ob- 
structing imports and therefore ex- 
ports; Russia, Rumania, France, 
Spain, Portugal, Switzerland, had 



raised their customs duties, also with 
like effect. A severe crisis had arisen 
in Australia and in Argentina, and 
civil war in Brazil, Chile, and other 
South and Central American states — 
all of which interfered with the pur- 
chasing power of nations. The spirit 
of enterprise was prostrated. People 
hoarded their money, withdrew their 
bank deposits. The currency of 
checks and drafts with which men met 
their ordinary obligations was dimin- 
ished fifty per cent in the United 
States, thus diminishing this ephem- 
eral currency which at that time 
probably averaged a thousand mill- 
ion dollars. 

The remedy proposed by the 
Democrats was the remonetization of 
silver; the Republicans refused to 
grant this, but craftily and unfairly 
expanded the paper currency of the 



national banks some five hundred 
millions by authorizing the banks to 
issue currency against two-per-cent 
bonds at a profit to the banks of 
approximately one and one-half per 
cent per annum on such issue by the 
Amendment of the National Bank 
Act in 1900. This, of course, was no 
remedy, for the currency remained 
inelastic altho expanded. 

In 1896, at the Democratic Con- 
vention at Chicago, as a member of 
the Committee on Resolutions, I 
strenuously urged a plank pledging 
the Democratic Party to protect the 
country from financial panics but 
failed to obtain support. I advo- 
cated, as a resolution before the Com- 
mittee on Resolutions, that United 
States bonds might, in times of 
threatened panic, be made converti- 
ble into Treasury notes to serve as 



currency as a source of quick supply 
of money to offset the withdrawal of 
currency for hoarding by frightened 
depositors; in effect, elastic cur- 

I failed to convince the Committee 
of its wisdom, but made a second 
attempt and obtained the support of 
Hon. Charles S. Thomas, of Colo- 
rado ; Hon. William J. Bryan, of Ne- 
braska, and Hon. Allen Thurman, 
Jr., of Ohio, and the Committee 
adopted the proposed resolution. On 
a reconsideration, however, at the 
request of Senator George, of Mis- 
sissippi, who strenuously opposed it, 
the Committee eliminated the pro- 
posal from the National Platform 
(Messrs. Thomas, Bryan, and Thur- 
man having withdrawn their sup- 
port) on the plea that it was novel, 
untried, and might add to the polit- 



ical difficulties of the Pariy in the 
coming campaign. 



In the summer of 1898 I went to 
Europe and studied the question in 
London, Paris, and Berlin, talking to 
the Governors of the Bank of Eng- 
land, the Directors of the Beichsbank 
of Berlin, as to their method of pro- 
tecting the country from panic, and 
in the summer of 1899 I undertook a 
propaganda, by written articles and 
addresses, showing how England, Grer- 
many, France, and Canada protected 
their business interests from finan- 
cial panic, and pointing out available 
remedies for the United States. 
I placed some of these proposals 
in the Congressional Record of Feb- 
ruary 25, 1908 (page 2450), and 



I)ointed out the means by which the 
Bank of England and the Bank of 
Germany, the Bank of France and 
the Banks of Canada, prevented and 
abated panic. From one of these ar- 
guments, dated September 26, 1899, 
I take the following (p. 2452) : 


**The Bank of England avoids panics by 
the foUowing method: 

**This Bank holds the ultimate reserve of 
aU the banks of the United Kingdom. The 
reserve constitutes the only available cash 
reserve against $3,500,000,000 in deposits. 
This reserve amounts to a sum ranging from 
$130,000,000 to $150,000,000, or about four 
per cent, of the deposits net. The Bank of 
England has a great advantage in having all 
the reserve concentrated in the hand of one 
concern charged with the duty (by the force 
of public opinion) of maintaining this reserve 
above the danger-point. 




First, The instant this reserve begins 
to diminish by gold export the Bank of Eng- 
land raises the rate of interest. This tends 
to check gold exports, to cause gold im- 
ports, and usually brings idle gold from the 
Continent. If, in ordinary times, gold is 
not attracted it is usually because there is 
loanable money on Lombard Street content 
with a lower rate. In this event the Bank of 
England sells consols for cash and buys 
them back on time, which has the effect of 
absorbing the loanable money on the street 
and thus making the rate effective in at- 
tracting gold. 

"Second, When local credit is violently 
disturbed, and for that reason the rate might 
not attract idle capital held by European 
bankers, the Bank of England borrows gold 
directly, as it did from the Bank of France 
when the Baring liquidation was anticipated. 

"Third, The Bank of England when panic 
threatens lends with great freedom to all 
legitimate borrowers, so as to relieve the 
pressure and relieve alarm as far as possible. 
For example: When Overend, Gumey & 



Co. failed in 1866, the Bank of England 
loaned in one day $^0,000,000 and in one 
week $50,000,000 to the depletion of the 
cash in the banking department. 

"Fourth, When the cash is about ex- 
hausted in the banking department and the 
closing of the bank becomes imminent, the 
administrative government of Great Britain 
has always, through the prime minister, by 
letter, advised the Bank of England to issue 
notes (legal-tender, money) against other 
securities than gold (to which the excess issue 
was confined by the act of 1844). This was 
done in 1847, in 1857, and in 1866, with the 
result that the panic in each case was con- 
trolled instantly. 

''The method of the Bank of England in 
raising the rate and borrowing gold is not 
adaptable to the United States, for the rea- 
son that the element of time and distance 
and absence of concentration are substantial 
barriers to such devices; bvi the issvs oj 
notes against proper securities can be made 
easily applicable to the United States by an 
act atitiwrizing the United States Treasury to 



issue Treasury notes against proper security 
deposited by the banks in times of stringency 
with adequate provision for retiring such notes 
when the panic is over. 


''The Imperial Bank of Grermany is sub* 
stantiaUy a state institution. The state gets 
all the benefit over and above a low rate of 
interest to the stockholders. The bank is 
controlled and dominated by the uniform 
rate of interest. It has substantially a 
monopoly in the issue of paper money. It 
carries in its vaults a large amount of gold 
and silver, averaging $200,000*000 in gold 
and silv^, principally gold. It is protected 
against panic, and Grermany is protected 
against panic, and the commercial stabihty 
of the German Empire secured by giving 
this bank the right to issue currency not only 
against gold, btU also against the securities 
held by the Imperial Bank, consisting of 
biUs, due toithin ninety days or less, and se- 
cured generally by three and at least by tvx> 



persons known to be solvent. It may issue even 
in excess of these limitations hy paying a tax 
to the German Empire of five per cent per 
annum on sveh over-issue. The resuU is that 
a panic in Germany is impossible^ that the 
normal rate of interest is between three and 
four per cent, commercial stability is securedy 
and their enterprises and manufactures are 
making themselves felt throughout the civilized 

"The store of gold held by the Imperial 
Bank of Germany is protected as in England : 
First, By raising the rate. 
Second, By favorable assay to foreign 
gold, by giving six to eight interest days to 
shippers, and other little devices favoring 
the shipment of gold to Berlin. 

"Third, The powerful influence of the 
bank is exerted on the bankers of Berlin to 
prevent their shipping gold, which is gen- 
erally eflfective. 

"Fourth, While the bank does not refuse 
to pay gold on demand, persons asking for 
gold for shipment feel that When the bank 
says *yes* it really means *no.* 



"The only features of the Grerman legis- 
lation apparently available in the United 
States are issuing currency against securities 
and issuing emergency currency under the 
penally of a tax, either one of which would 
appear suffiderU to protect the United States 
from panic, and both of which should he 


"The Bank of France, which is practically 
tinder state control, carries the largest gold 
and silver reserve in Europe. Its gold was, 
October 13, 1898, $369,000,000; its silver 
was $246,000,000, making a total of $615,- 

"The duty of the governor of this bank is 
to watch that Hhe bank performs its duty to 
the state and toward the commerce and industry 
of ihe country* The banks of the United 
States owe a duty to the state and toward the 
commerce and industry of the country which 
the law should enable and require them to 



''This bank is protected against panic by 
the avihority under the law of 1897 to issue 
legal-tender notes to the amount of $1,000,- 
000,000, of which it has issued $739,000,000. 
[The Bank of France thus retained an elastic 
margin of $261,000,000 which it could issue 
if needed, while the people had in pocket 
over $700,000,000 of currency— about $10a 
per family, and had no reason to make a run 
on the Bank of France.] 

•*It hoards its gold and silver not by 
raising the rate, but by other devices. First,, 
in case of an exchange unfavorable to France, 
the Bank of France pays out small gold 
coins which by use are slightly under weight 
and therefore not suitable for export. In 
case of strong demand money brokers buy 
up fuU-weight napoleons, atid sell them for 
export, and ultimately the bank feels the 
withdrawal, but it costs something to take 
gold from France in this manner, and the 
method opposes a mechanical obstruction to 
the withdrawal of gold. Second, if a request 
is made of the Bank of France for a large 
amount of gold for export the request must 



be submitted to the directors, who impose a 
charge just at a point which is usually pro- 
hibitive. Third, in case of need the Bank of 
France can protect its gold hoard by paying 
out five-franc silver pieces as legal tender 
under the law, and this provision of course 
abundantly protects the gold held by the 
bank against direct withdrawal. 

"There is a vast difference between the 
business methods of France and the business 
methods of the United States. The French 
people by long custom still maintain and do 
nearly all their business in cash, and checks 
are comparatively little used in commercial 
life. The consequence is that the people 
have acquired and use a very large amount 
of currency in gold and silver, including 
$739,000,000 in notes of the Bank of 

"The Bank of France not being compelled 
to pay gold on demand, though it does do so 
for domestic purposes, does not need to raise 
the rate of interest to protect its gold. For 
this reason, while the bank rate from Feb- 
ruary, 1889, to October, 1897, was raised by 


the Bank of England fifty- three times, and 
by the Imperial Bank of Germany twenty- 
six times, it was only raised by the Bank of 
France once. It is the policy of the Bank of 
France to let the French people have money at 
the unvarying rate of three per cent, believing 
that stability in the rate of interest gives sta- 
baity to ccmmerdal enterprise and promotes 
the welfare of the * commerce and industry 
of the country, which is a chief duty of 
the bank. 

"The very large surplus in coin of the 
Bank of France prevents the loss of confi- 
dence which leads to panic, and the bank 
has so large a margin of note issue, with dis- 
position to extend every reasonable demand, 
and France itself has so large a supply of 
internal currency in circulation, and the 
banking deposits being relatively small, that 
there is no danger there of panic in times of 


*'Even the banks of our nearest neighbor, 
the Dominion of Canada, have a method 



^hich expands and contracts the circulation 
as much as twenty per cent during the three 
months in each year when the crops of forest 
and field are moving. 

'^ Their notes may be issued to the exteni of 
their unimpaired capital paid up. 

''The notes form a prior lien on the assets 
and are secured by a five-per-cent guaranty 
fund. The notes must be redeemed at any 
part of the Dominion. No reserve is actu- 
ally required by law, but the cash reserve 
for redemption has actually averaged in gold 
and legal tenders for some years ten per 
cent about. Under the law, forty per cent 
of the reserves must be in Dominion legal 
tenders, which, of course, take care of such 
paper to that extent. There is a double 
liability of stockholders, a special liability of 
directors, elaborate regulations, frequent 
printed reports, etc. The striking feature 
is that in the history of these banks the 
guaranty fund of five per cent for the 
security of their notes has never been 
depleted, and that this method ofers a 
Tnethod which the United States might safely 



use for expanding the currency**— Cong. 
Rec.y p. 2453. 

The vital point of the English 
system was the issuance of hgaU 
tender bank notes by the Bank of 
England against securities and gold» 
and lending these notes at interest. 
This was permitted by a Ministerial 
Permit in 1847, 1857, and 1866, with 
the result that the panic in London 
in each case was instantly con- 
trolled {Hist. Bk. Eng.y Andr^adSs, 
836, 349, 350). 

The German method, to which I 
called attention at that time (1899), 
consisted in issuing currency against 
securities under a penalty of a tax of 
five per cent on the issue to the ex- 
tent it exceeded its fixed gold secur- 
ity, and lending these bank notes at 
interest, and I recommended at that 
time (1899) the following remedy: 



"The remedy for panics in the United 
States which suggests itself is: 

"First, Establish Postal Savings-Banks^ in 
which * timid* depositors with inactive ac- 
comits may place their money, because at 
present by sudden hoarding in times of 
excitement they constitute the greatest dan- 
ger to the stability of banks and therefore 
to the stability of commerce. 

"Second, Issue to such depositors in the 
postal savings-banks, in lieu of their de- 
posits, a bond, of long term, with liberal 
option as to period of redemption by the 
Government, bearing a low rate and issued 
in small denominations, available for cur- 
rency, and make such bonds legal tender. 
In this way such deposits would become a 
source of strength instead of weakness. 

"Third, Authorize the Treasury of the 
United States to issue Treasury notes to banks 
depositing bonds of a fixed character , Federal^ 
state, or municipal^ where the standing of svch 
bonds is thoroughly assured, leaving the deter- 



mination of their character with the Secre- 
tary of the Treasury. In this case a charge 
should he made against the banks drawing the 
notes by a tax in excess of the amount of in- 
terest borne by such bonds, so a^ to secure the 
prompt redemption and repayment of the 
advances.'* — Cong. Rec, February 25, 1908; 
p. 2453. 

Since this recommendation was 
made the principles I then proposed 
have been adopted by the United 
States : 

First, The Postal Savings-Banks 
have been estabUshed to absorb the 
deposits of timid depositors. Act of 
Jime 25, 1910, 36 Stats., 814. 

Second, The Aldrich-Vreeland Bill 
(May 30, 1908), recognizing the prin- 
ciple of 

(a) Issuing bank notes, 

(b) At interest, 

(c) Against adequate securities, 



although with most serious obstacles, 
were placed in the way of getting the 
currency (35 Stats., 546). 

Third, The Federal Reserve Act of 
December 23, 1913 (35 Stats., 251), 
was passed, having been engineered 
through the United States Senate 
under my management as Chairman 
of the Committee on Banking and 
Ciurency, perfected these principles 
by providing 

(1) A quick supply of Treasury 
Federal Reserve Notes (money); 

(2) Issued and controlled by the 

(3) Against adequate security, in- 
cluding commodity bills; 

(4) Under an interest charge to 
prevent inflation; and 

(5) Making these notes (money) 
easily available at any time or place 

in the United States where a business 



man fairly entitled to credit wanted 

United States bonds may be used 
now as a basis of issuing Federal Re- 
serve Notes, under an interest charge 
fixed by the authorities of the United 

I advised the country at that time 

"That the currency could be quickly and 
safely expanded by issuing Treasury notes 
against standard securities put up as col- 
lateral with the Treasury of the United 
States. In this manner the sudden with- 
drawal of deposits and the shrinkage of the 
narrow margin of currency available to the 
banks could be supplemented as above 
stated without forcing into liquidation, at 
such an unfortunate time, any borrower. An 
issue of this kind could be made under proper 
safeguards with a sUding scale of interest 
against the party drawing Treasury notes 
on such collateral and the redemption of such 


securities when the Government desired 
it."— Page 2454, Cong. Rec. (1908). 

At that time I made the following 
comiment (Ibid., p, 2454): 

"It is the duty of the United States to 
provide a means by which periodic panics 
which shake the American Republic and do 
it enormous injury shall be stopped. They 
are easy to prevent. The remedy is per- 
fectly simple. Provide a means for quickly 
expanding the currency when financial fear 
threatens the country. Provide a means by 
which the timid depositor who rushes on the 
banker and demands his money shall not 
frighten that banker out of his wits. Provide 
a means by which that banker can, upon the 
strength of adequate security, obtain a tem- 
porary accommodation of money with which 
to meet his frightened depositors. In a time 
of panic a man cannot borrow money if he 
puts up gold dollars as collateral, for the 
manifest reason that it is not security, but 
currency, which is then required. The banker 



has not the currency to Iend» and he cannot 
lend that which he has not, no matter what 
the security. You cannot then borrow on 
Government bonds if you put up $10,000 for 
$1,000. It is the duty of the United States 
to protect the commercial Ufe of its citizens 
against this senseless, unreasoning, destruc- 
tive fear that seizes the depositor when he 
has been sufficiently hypnotized by the 
metropoUtan press with its indiscreet sug- 

On February 6, 1900 (Congres- 
sional Recordy page 1534), Senator 
James K. Jones offered an amend- 
ment to the then pending Aldrich 
Bill, contemplating the amendment 
to the National Bank Act, which I 
drew as follows: 

"That the Secretary of the Treasury is 
hereby directed to have printed and to keep 
on hand United States Treasury notes under 
a special account to be called the 'emergency 



circulation fund/ Such notes shall be full 
legal tender. Any citizen of the United 
States shall have the right to deposit United 
States bonds under rules and regulations to 
be prescribed by the Secretary of the Treas- 
ury, and to receive from such fund ninety 
per cent of the face value of such bonds in 
United States Treasury notes, and shall 
have the right at any time within twelve 
months to redeem such bonds by repaying 
in United States Treasury notes the amount 
so received by him on account of such bonds, 
with interest at the rate of six per cent per 
annum on such amount. Failure to redeem 
such bonds within the limit of twelve months 
shall operate as a forfeiture of such bonds to 
the United States, and such bonds shall be 
sold to the highest bidder in the open market, 
and the balance, after the payment of the 
principal of the amount advanced, the in- 
terest on the same, and the expenses, shall 
be paid to the former owner of such bonds. 
Any moneys received from such sale may 
be exchanged with other moneys in the 
Treasury, so that this fund shall consist 


alone of Treasury notes. The principal of 
all sums so advanced when repaid shall be 
returned to the * emergency circulation 
fund/ and all interest upon such sums shall 
be passed to the credit of the Treasury under 
miscellaneous receipts." 

Here again was presented the vital 
principles of (a) quick money. Gov- 
ernment notes (b) against adequate 
security, (c) loaned by the Govern- 
ment at interest high enough to pre- 
vent inflation. 

Senator Aldrich, then in charge of 
the Bill, declined to accept this 
amendment or to improve upon it 

The panic of 1907 ensued, leaving 
American business men and banks 
unprotected, and Senator Jones wrote 
to me, as follows, calling my atten- 
tion to the amendment which he 
had proposed and suggesting that 



it would have prevented the panic 
of 1907, if it had been adopted: 


(Law Offices of James K. Jones and 
James K. Jones, Jr., 621, 622 Colorado 
Building. Telephone Main 638) 

"Washington, D. C, February 11, 1908. 

"Hon. Robert L. Owen, 

United States Senate, 

"Dear Senator: 

" I inclose a copy of tne amendment which 
I offered to the financial bill on February 6» 
1900. — Congressional Recordy p. 1534. 

"You will, of course, recall the fact that 
you prepared the original draft of this pro- 
posed amendment, which I mtroduced in 
almost, if not in exactly, the form submitted 
by you. I think you will find the debate on 
that bill at that time quite interesting. 

"If that amendment had been adopted at 

that time and it had been written in the law, 

it would, in my opinion, have prevented the 

late panic. 



*'I am glad to see that at last the principle 
of emergency currency properly secured is 
recognized and that the Committee on 
Finance of the Senate indorse it. 

** Congratulating you on your early con^ 
nection with this idea, I am 

Very sincerely yours, 

*' James K. Jones/' 
—Cong. Record, Feb. 26, 1908, p. 24«9. 


After the panic of 1907 occurred 
Senator Aldrich brought in a pro- 
posed remedy, afterward known as 
the " Aldrich - Vreeland Law," and 
in his address to the Senate Febru- 
ary 10, 1908 {Cong. Rec, p, 1755), he 
pointed out that the panic 

** Was the most acute and disastrous in its 
immediate consequences of any which has 
occurred in the histoiy of the country/* 

''That 'the shrinkage in values of securi- 
ties and property, and the losses from injury 
to business resulting from and incident to 


the crisis, amounted to thousands of millions 
of dollars'; 

"That *a complete disruption of the ex- 
changes between cities and communities 
throughout the country took place'; 

"That Mt is impossible to estimate the 
losses which were inflicted by this suspension 
of payments by the banks, and the resultant 
interruptions of exchanges/ etc., etc.; 

"That ' there was financial embarrassment 
on every hand, and an impossibility of secur- 
ing the proper funds to move crops or to carry 
on the ordinary business of the country'; 

"That *the suspension or disarrangement 
of business operations threw thousands of 
men out of employment and reduced the 
wages of the employed'; 

"That *if the business interests of the 
country are left defenseless through the in* 
action of Congress, the most serious conse« 
quences may follow.'" 

Senator Aldrich, as Chairman of 
the Committee on Finance, there- 
upon urged the passage of Senate 



Bill S023, to amend the National 
Banking laws. This bill provided for 
the establishment of National Cur- 
rency Associations, and it was ap- 
proved May 30, 1908 (35th Stats., 

These National Currency Associa- 
tions, to be composed of not less than 
ten national banks in number, and 
each association having a capital and 
surplus of at least five millions of 
dollars, were to be authorized as cor- 
porate bodies. They were authorized 
to expand the circulation by the ap- 
proval of the Comptroller of the Cur- 
rency to an amount m)t exceeding 
seventy-five per cent of the cash 
value of the securities or commercial 
paper deposited under the direction 
and control of the Secretary of the 
Treasury. The notes were to be bank 
notes, and many restrictions were 



placed upon the issuance of these 
notes. For instance: 

**No association should be authorized to 
issue circulative notes based on commercial 
paper in excess of thirty per cent of it sun- 
impaired capital and surplus, and 

''The commercial paper was to include 
only notes representing actual conmiercial 
transactions, with two responsible names, 
and not exceeding four months to run. Such 
notes should not exceed ninety per cent 
market value of qualified bonds, and 

''The total amount of circulating notes 
outstanding of any national banking asso- 
ciation, including notes secured by United 
States bonds, as provided by law, and notes 
secured otherwise than by deposit of such 
bonds, shall not at any time exceed the 
amount of its unimpaired capital and sur- 

The whole system was under the 
further sweeping provision that un- 
der no circumstances should the gross 
amount of circulative notes issued by 



all the banks in the United States^ 
under this Act, exceed five hundred 
million dollars. 

It was further provided that the 
notes should be distributed as equi- 
tably as practicable between the 
various sections of the country. A 
very impractical provision in time of 

Furthermore, the national banking 
associations issuing such circulating 
notes, proposed by the Act, were re- 
quired to pay for the first month a 
tax of five per cent per annum upon 
such notes in circulation, with one 
per cent per amium for each month 
thereafter until a tax of ten per cent 
per annum was reached. 

The Bill provided for the with- 
drawal of national bank notes based 
upon bonds to the extent of nine 
million dollars a month, and a can- 



cellation of the authorized new cir- 
culative notes. 



I strongly objected on the floor of 
the Senate (February 25, 1908) to the 
various obstructions in the way of 
quick - circulating notes, on the 
ground that the method was unrea- 
sonable, cumbersome, and defeated 
the object of preventing panic, al- 
though useful in abating a panic after 
its occurrence. 

"That these notes were pretended to be 
national bank notes, but in reality were 
United States notes because practically guar- 
anteed by the United States. 

"Because it would take six thousand six 
hundred different plates to print these notes 
[a different note for each bank] instead of 
one plate. 

" Because the high rate of interest would 


make these notes available only after a panic 
had occurred. No bank in sound condition 
and free from the fear of a panic would take 
the trouble to call a meeting of the directors 
of a national currency association and make 
the appeal necessary to obtain these circu- 
lating notes and put up their securities on a 
charge of five per cent up to ten per cent 
for the use of such notes, unless a panic had 
already taken place." 

I called the attention of Senator 
Aldrieh to the interesting fact that 
the issuance of circulating notes 
based upon securities at a reasonable 
rate of interest had been proposed on 
February 6, 1900, in an amendment 
which I had drawn and which was 
offered by Senator James K. Jones 
and which was rejected by Mr. 
Aldrieh, and that his refusal of this 
proposal had left the country impro- 
tected against the panic of 1907. I 
pointed out also that the only value 


of his present proposal (Sen. 3023), 
in February, 1908, was that it did 
provide circulating notes against se- 
curity under an interest charge high 
enough to prevent inflation, but that 
it was insufficient in amount, because 
the panic of 1893 had required a very 
much larger sum of currency, clearing- 
house certificates, cashiers' checks, 
pay checks, etc., over $1,000,000,000, 
to meet the demand for currency, and 
that his Bill was defective just to the 
extent that it proposed obstructions 
to the free delivery of such circulating 
notes, and to the ease with which peo- 
ple might obtain them. 

After I had made this indictment 
of the neglect of Senator Aldrich to 
adopt these principles in 1900, 1 said 
(Cong. Rec.y p. 2429) : 

** I pause to say that, if any Senator [look- 
ing at Mr. Aldrich] wishes to interrupt me 



at any time, it will not disconcert me in the 

*'The Senator from Rhode Island would 
have saved his country and millions of its 
people .the enormous shrinkage in values of 
securities and property and the loss from 
injury to business resulting from and inci- 
dental to the crisis, amounting, as he himself 
now declares, to 'thousands of millions of 

"He would have prevented *the suspen- 
sion or disarrangement of business opera- 
tions which threw thousands of men out of 
employment and reduced the wages of those 
who were still employed.* 

"He would have prevented the fear and 
distrust which has now paralyzed and makes 
unproductive the energies of hundreds of 
thousands of men and holds idle many 
thousands of factories and business en- 

Senator Aldrich did not interrupt 
me and made no defense against this 



I pointed out at that time (page 
2432) : 

1. That the committee bill limited 
the issue to five hxmdred million dol- 
lars of emergency notes, which had 
been demonstrated by the Chainoan 
himself to be insuflEicient in volume, 
and imposed restrictions which would 
prevent any but a fractional part of 
that issue, and in addition closed 
every door to relief until after the 
Secretary of the Treasury should 
have declared an emergency, which I 
insisted should be left to the bank 
makmg application and not to the 
Treasury, because a bank may be put 
in a panic within twenty-four hours, 
and nobody can know this as well as 
the bank oflEicers. 

2. I objected to six thousand six 
himdred varieties of national bank 
notes when these notes should be 



United States Treasury notes in one 

3. I objected that the national 
banks were not permitted to take 
advantage of the Bill unless they 
came within certain rigidly described 
classes, thus limiting the efficiency of 
the proposed remedy and preventing 
its full and free exercise. For exam- 

4. No national bank which has less 
circulating notes outstanding than 
forty per cent of its capital was per- 
mitted to have the benefit of the Act. 

5. No national bank with a siuplus 
of less than twenty per cent was per- 
mitted to have relief. 

6. No national bank in any event 
was to have any relief in emergency 
notes exceeding a gross amount of 
its outstanding notes in excess of the 
capital and surplus of such bank. 



7. Even under these vexatious lim- 
itations the national banks within the 
classes described were only permitted 
to have reUef of a limited amount of 
these emergency notes apportioned 
off to each of the several states re^ 
gardless of the national exigency. 

8. Moreover, no state bank, no 
trust company, no savings-bank, was 
permitted to have the benefit of this 
remedy against panic, although these 
institutions at that time held two- 
thirds of the banking capital of the 
United States, and had less than four 
per cent currency reserve, and were 
therefore to that extent dangerous to 
our financial stability. 

All these objections, made in 1908, 
were remedied in the Federal Re- 
serve Act in 1913. 

I demanded (page 2435) that the 
volimie of emergency notes should 



not be limited except by the actual 
requirements of our commerce. 

This has been accomplished. 

I demanded that these notes should 
not be national bank notes, but 
should be Treasury notes based upon 
the securities and the credit of 
the banks, but in addition (being 
Treasury notes) supported by the 
taxing power of the people of the 
United States. 

This was accomplished in the Fed- 
eral Reserve Act. 

I advocated at that time the retire- 
ment of the bond-secured national 
bank notes and the issuance in lieu 
thereof of Treasury notes payable in 
gold (page 2436). 

The Federal Reserve Act provided 
the gradual retirement of the bonds 
and national bank notes by substi- 
tuting Federal Reserve bank notes. 



In 1908 I urged also the issuance 
of Treasury notes in lieu of gold 
certificates, and tbat the gold thus 
released should be added to the 
reserve fund in the division of 
redemption. This has been accom- 
plished, imder the Federal Reserve 
Act. Federal Reserve notes are now 
issued in lieu of gold, and such gold 
to the extent of many hundreds of 
millions of dollars has passed into the 
hands of the Federal Reserve banks 
in the custody of Federal Reserve 
agents and made available for this 
very purpose (page 2436). 

The Committee (Aldrich) Bill 
(1908) permitted railroad bonds to be 
used as a basis of the emergency cir- 
culative notes, and did not provide 
that privilege for United States 
bonds. Against this I vigorously pro- 
tested (page 2441). The Federal Ren 


serve Act corrected this by provid- 
ing that United States bonds might 
be used as a basis for obtaining 
Federal Reserve notes, and does not 
permit railroad bonds to be so used. 

I further insisted in 1908 upon a 
readjustment of the cash reserves of 
the banks so that they would be real 
reserves and actually available, as 
they were not under the then existing 
statute (page 2444). This was cor- 
rected in the Federal Reserve Act. 

I stated at that time the principles 
which should govern the statutes on 
banking, as follows : 

^'It should always be kept in mind that it 
is not the welfare of the bank, nor the wel- 
fare of the depositor whidi is the main 
object to be attained, but it is the preven- 
tion of panic, the protection of our com- 
merce, the stability of business conditions, 
and the maintenance in active operation of 



the productive energies of the nation which 
is the question of vital importance/* 

The Aldrich-Vreeland Act did not 
accomplish this result, yet it did have 
the great virtue of recognizing the 
broad principle which I had advo- 
cated in 1899 of 

Making elastic currency available. 

On adequate security; 

On an interest charge to prevent 

The vital defects of the Aldrich- 
Vreeland Emergency Currency Act 
consisted in putting the system in 
the control of the banks and making 
the ciurency difficult of access and 

ACT, 1913 AND 1914 

On December 23, 1913, the Federal 
Reserve Act, Section 27, extended 



the Aldrich-Vreeland Act, subject to 
the modifications of the Federal Re- 
serve Act, to June 30, 1915, and with 
the important amendment that ""the 
tax on circulating notes, secured 
otherwise than by bonds of the 
United States, shall pay for the first 
three months a tax of three per centum 
per annum upon the average amount 
of such of their notes in circulation as 
are based upon the deposit of such 
securities, and afterwards an addi- 
tional tax rate of one-half of one per 
centum per anmmi for each month 
unUl a tax of ^ per centum per an- 
niun is reached, and thereafter such 
tax of six per centum per annum upon 
the average amount of such notes/* 

I had reconunended a lower rate of 
interest on February 25, 1908, as a 
substitute for the Aldrich Bill, put- 
ting the interest at six per cent for 



the first twelve months {Cong. Rec.^ 
page 2445), and a lower rate was 
provided in the Federal Reserve Act 
Amendment of from 3 per cent to 
6 per cent. 

On July 31, 1914, when the Euro- 
pean war broke out, I offered an 
amendment to the Aldrich-Vreeland 
Act which was adopted that day by 
unanimous consent, as follows: 

"Provided further that whenever in his 
judgment he may deem it desirable the Sec- 
retary of the Treasury shall have power to 
eiispend the limiiations imposed by Section 1 
and Section 3 of the Act referred to in this 
Section, which prescribed that such addi- 
tional circulation secured otherwise than by 
bonds of the United States shall be issued 
only to national banks having circulating 
notes outstanding secured by the deposit of 
bonds of the United States to an amount not 
less than forty per cent of the capital stock 

of such banks, and may permit national 



banks during the period for which such pro- 
visions are suspended to issue additional cir- 
culation under the terms and conditions of 
the Act referred to" (page 13067). 

This amendment was in accord- 
ance with the recommendations which 
I had made on February 25, 1908, and 
which were not accepted at that time. 

In the House of Representatives a 
further amendment was offered and 
adopted to authorize the Secretary 

** To suspend also the conditions and limita- 
tions of Section 6 of said Act, — ^that is, to 
suspend the provision that the total amount of 
circvlaiing notes outstanding secured by 
United States bonds, as now provided by 
law, and notes secured otherwise than by 
deposit of such bonds, shall not at any time 
exceed the amount of its unimpaired capital 
and surplus and to authorize the suspension 
of the limitation of the circulating notes or 
emergency notes to Jive hundred million dot- 



Both of these conditions, which I 
had objected to on February 25, 
1908 (pages 2433 and 2435), were in 
this way corrected. 

The House added a further provi- 
sion authorizing the Secretary of the 
Treasury to extend the benefits of the 
Act to all qualified state banks and 
trust companies which have joined 
the Federal Reserve System or which 
may contract to join within fif- 
teen days after the passage of the 

The demand for recognizing the 
state banks and trust companies 
in the issuance of emergency notes I 
had made on February 25, 1908 
{Cong. Rec.y page 2436), and it was 
here provided to this extent. 

The House amended the bill, as 
stated, on August 4, 1914, and the 
Senate immediately accepted thcr 



House amendments with a proviso 
that national banks should not issue 
more notes than 125 per cent of cap- 
ital and surplus. 

I had taken this matter up with 
the Treasury Department on Friday 
morning, July 31, 1914, agreed upon 
the form of amendment with the 
Treasury Department, and called 
the Banking and Currency Conmiit- 
tee together and obtained a imani- 
mous report in favor of the amend- 
ment, and the bill passed unani- 
mously through both Houses with the 
amendments above indicated. 

The amendments in the House 
were brought about by numerous 
conferences between the Committees 
of the Senate and the House of Rep- 
resentatives, and all these amend- 
ments were actively urged by such 
distinguished bankers as Frank A. 



Vanderlip, president of National City 
Bank, New York, and Chas. C. 
Glover, president Riggs National 
Bank, Washington, and others. 

The Treasury immediately sent 
out a very large amount of circulat- 
ing notes imder the Aldrich-Vreeland 
Act, and a total issue was made 
amounting to $386,444,^15, all of 
which was retired by July 1st, 1915 
(except $200,000, later retired), which 
served to protect the coimtry in a very 
important way against the threat of 
a panic due to the European war. 



The Aldrich-Vreeland Act, ap- 
proved May 30, 1908, estabUshed the 
National Monetary Commission of 
nine Senators and nine members of 
the House, to inquire into and report 



to Congress at the earliest practicable 

"What changes are necessary or 
desirable in the Monetary System of 
the United States, or in the laws re- 
lating to banking and currency/' etc. 

On January 19, 191S, the National 
Monetary Commission made its re- 
port to Congress with a proposed bill 
to incorporate the "National Re- 
serve Association of the United 
States" (Senate Doc. 243, 62d, 2d)- 

This bill provided for the "Na- 
tional Reserve Association" with a 
capital of one hundred millions paid 
in, and two hundred milhons to be 
subscribed before commencing busi- 
ness, the total capital to be equal to 
twenty per cent, of the capital of the 
member banJcs, its head office in 
Washington. It had the usual cor- 
porate powers. 



National banks were required to 
subscribe to this stock. Yet the 
bankers who approved this bill in- 
sisted afterwards that national banks 
should rvat be required to subscribe to 
the Government-controlled Federal 
Eeserve Banks. The bill provided 
an orpnization committee composed 
of the Secretary of the Treasury, 
the Secretary of Commerce and 
Labor, and the Comptroller of the 
Currency. The Association was to 
have fifteen branches in as many dis- 

1. The National Reserve Associa- 
tion was to be under the control of a 
board of directors, consisting of fif- 
teen directors to be elected, one by 
the board of directors of each branch 
of the National Reserve Association; 

2. Fifteen additional directors 
elected in the same way to represent 



the agricultural, conunercial, indus- 
trial, and other interests of the dis- 

3. Nine additional directors were 
to be elected by a voting representa- 
tive chosen by the board of directors 
of the various branches, each of 
whom should cast a number of votes 
equal to the number of shares in the 
National Reserve Association held in 
the branch which he represented. 

4. There were to be seven ex- 
officio members of the board of direc- 
tors, namely: the governor of the 
National Reserve Association, who 
should be Chairman of the Board; 
two deputy governors of the National 
Reserve Association, the Secretary 
of the Treasury, the Secretary of 
Agriculture, the Secretary of Com- 
merce and Labor, and the Comp- 
troller of the Ciurency. 


The executive officers were to con- 
sist of the governor, two deputy gov- 
ernors, a secretary, and such sub- 
ordinate officers as might be provided 
for in the by-laws. 

The effect of this "plan was to place 
absolutely in the hands of the banks 
the control of the reserve system. And 
to fix this stupendous power in the 
hands of five men in New York City 
representing a Board of forty-six per- 
sons, forty-two of whom were to be 
chosen by the banks and four of 
whom were to represent the Gov- 
ernment of the United States. The 
Bill proposed to exempt the Reserve 
Association and the local associations 
from local and state taxations ex- 
cept as to real estate. In each branch 
association the manager and deputy 
manager were to be appointed from 
the districts by the governor of the 



Association with the approval of the 
executive oommittee and the board of 
directors of the branch, and sub- 
ject to removal at any time by the 
governor with the approval of the 
executive committee of the National 
Reserve Association. The local asso- 
ciations were authorized, for a com- 
mission, to guarantee comimercial 
paper for rediscount at the branches 
of the National Reserve Association. 

It was provided that any Igcal as- 
sociation might function as a clear-' 
ing-house by a vote of three-fourths 
of its members with the approval of 
the National Reserve Association. 

The Federal Reserve Banks were 
intended by the Federal Reserve Act 
to function as clearing houises and 
clear checks at par, hut by the pres- 
ent Federal Reserve Board they only 
serve as collection agencies of checks 



and clear very lamely. Some day 
this will be corrected and the Act 
administered more advantageously 
for business men and depositors. 

It was proposed that the National 
Reserve Association should he the 
principal fiscal agent of the United 
States, and that the Government 
should thereupon deposit all its gen- 
eral funds with said Association and 
its branches, and thereafter all re- 
ceipts of the Government, exclusive 
of trust funds, should be deposited 
with said Association and its 
branches, and all disbursements by 
the Government should be made 
through said Association and its 

Section 24 provided that the Gov- 
enmxent of the United States and the 
banks holding stock in the National 
Reserve Association should be the 



only depositors in said Assoda- 

Section 25 provided tibiat the Asso- 
ciation should pay no interest on 

Section 26 authorized the Associa- 
tion to rediscount for its member 
banks commercial bills, but not on 
bills based on investment securities. 
Discoimted bills should not have a 
maturity of more than twenty-eight 
days, nor exceed the capital of the 
bank for which rediscoimts were 
made, nor exceed ten per cent of 
the unimpaired capital of the mem- 
ber bank. Bills up to four months 
were approved for discoimt with the 
guarantee of the local association. 
The National Association was au- 
thorized, with the approval of the 
Secretary of the Treasiuy, to dis- 
coimt the obligation of a member 



bank endorsed by its local asso- 
ciation, provided the loan did 
not exceed three - fourths of the 
actual value of collateral securities 

Section 30 provided that the Asso- 
ciation should have the authority to 
fix its rate of discoimt throughout 
the United States. 

Section 31 authorized national 
banks to issue acceptances not ex- 
ceeding four months properly se- 
cured, based on commercial transac- 
tions, the total acceptances not to 
exceed one-half of the capital and 
siuplus of the accepting bank* 

Section 32 authorized the Reserve 
Association to purchase such ac- 
ceptances with not exceeding ninety 
days to nm. 

Sections 33 and 34 authorized the 
Association to invest in Government 



bonds and Treasury notes and deal 
in gold coin and bullion. 

Section 35 authorized the National 
Reserve Association to purchase and 
sell commercial paper o^ bills of ex- 
change rising out ot commercial 
transactions and payable in foreign 
countries, provided the bills do not 
exceed ninety days, have two re- 
sponsible signatures, the last a sub- 
scribing bank. 

Section 36 authorized the Reserve 
Association to open and maintain 
banking accounts in foreign countries 
and establish agencies in foreign 
countries for the purpose of handling 
foreign bills and checks. The mem- 
ber banks were authorized to count 
their deposits with the Reserve Asso- 
ciation as legal reserves. The Re- 
serve requirements were lowered by 
making no reserve necessary on de- 


posits maturing more than thirty 
days from date. 

Section 40 authorized national 
banks to loan not more than thirty 
per cent of *heir time deposits upon 
real estate, but not to exceed fifty 
per cent of the actual value of the 
real property, but excluding reserve 
agents from this privilege. 

Section 41 provided that the Na- 
tional Reserve Association should 
cover all demand liabilities, including 
deposits and circulating notes to the 
extent of fifty per cent in gold or 
lawful money, with a proviso that 
whenever and so long as such reserve 
should fall and remain below fifty 
per cent the Reserve Association 
should pay a special tax upon the 
deficiency of reserve at a rate increas- 
ing in proportion to such deficiency, 
as follows: 


For each two and a half per cent below 
the required reserve a tax shall be levied of 
one and a half per cent per annum, and this 
elasticity ceased when the gold reserve fell 
to one-third of the outstanding notes. 

Yet the Bank of England has been 
compelled by war to drop to eighteen 
per cent reserve against outstanding 
Bank of England notes and a lower 
per cent against deposits. 

In computing the demand liabili- 
ties of the National Reserve Associa- 
tion a sum equal to one-half of the 
amount of United States bonds held 
by the Association which have been 
purchased from national banks, and 
which have previously been deposited 
by such banks to secure their circu- 
lating notes, should be deducted from 
the amount of such liabilities. 

Section 48 forbade national banks 
to reissue any further national bank 
notes, and 

Section 49 gave the National Re- 



serve Association the right to ofifer to 
purchase at par and accrued interest 
the two-per-cent bonds held by sub- 
scribing national banks and deposited 
to secure their circulating notes, the 
National Reserve Association to take 
over the bonds and assume the re- 
sponsibility for the redemption of 
bank notes. The National Reserve 
Association was thereupon author- 
ized to issue, — 

"Its own notes as the outstanding 
notes secured by such bonds," and 

"May issue further notes from time to 
time to meet business requirements, being 
the policy of the United States to retire as 
rapidly as possible, consistent with the pub- 
lic interests, bond-secured circulation, and 
to substitute therefor notes of the National 
Reserve Association of a character and se- 
cured and redeemed in the manner provided 
for in this Act." 

Section 50 required the note issues 
to be covered by legal reserves of 
from thirty-three and one-third to 



fifty per cent, and by notes or bills 
of exchange arising out of connner- 
cial transactions or obligations of the 
United States. 

Section 51 provided that any notes 
of the National Reserve Association 
in circulation at any time in excess of 
nine hundred million dollars which 
are not covered by an equal amount 
of lawful money, gold bullion, or for- 
eign gold coin held by said Associa- 
tion, shall pay a special tax at the 
rate of one and one-half per cent per 
annum, and any notes in excess of 
one billion two hundred million dol- 
lars, not so covered, shall pay a spe- 
cial tax at the rate of five per cent 
per annum, provided that in com- 
puting said amounts the aggregate 
amount of any national bank notes 
then outstanding shall be included. 

The notes of the Reserve Assoda- 


turn were to be available for member 
banks as reserves. 

The notes were to be received at 
par in payment of all taxes, exer- 
cises, and otiher dues to tihe United 
States, and for all salaries and other 
debts and demands owing by the 
United States to individuals, firms, 
corporations, or associations, except 
obligations of the Government spe- 
cifically payable in gold, and for all 
debts due from or by one bank or 
trust company to another, and for 
all obligations due to any bank or 
trust company; in other words, le- 
gal TENDER, except for specific gold 
contracts of the United States. 

Section 55 directed the Secretary of 
the Treasury to exchange the two- 
per-cent bonds of the United States 
bearing a circulation privilege for 
three-per-cent bonds without the 



circulation privilege, payable fifty 
years from date, and the National 
Reserve Association was required to 
hold the three-per-cent bonds during 
the period of its corporate existence, 
with the right to sell at the option of 
the Treasury, after five years, not 
more than fifty million dollars of such 
bonds annually, the United States 
reserving the right to pay off such 
bonds at any time. 

Section 56 required the National 
Reserve Association to pay the Gov- 
ernment a special franchise tax of 
one and a half per cent annually 
during the period of its charter upon 
an amount equal to the par value of 
such United States bonds transferred 
to it by the subscribing bank. 

The effect of this provision was 
that the United States would pay 
three per cent and get back one and 



a half per cent, paying one and a 
half per cent interest net annually 
for the exchange of its credit for the 
credit of the Association, a net annual 
profit on $900,000,000 of $13,500,000 
to the bank at the expense of the United 

Section 57 authorized banking cor- 
porations to be organized for the trans^ 
action of foreign banking business. 

When this Act was presented to 
the Congress of the United States an 
active propaganda ensued through- 
out the United States to obtain for it 
the public approval; meetings were 
held in various cities of the United 
States under the patronage of the 
American Bankers' Association. Sen- 
ator Aldrich made many public ad- 
dresses in its favor, but Congress 
took no action because there was a 
very resolute opposition in Congress 


toward turning over the entire con- 
trol of the credit system of the United 
States to private hands and prac- 
tically uncontrolled by the National 
Government. The most serious ob- 
jections to the Aldrich Bill were these : 

1. The entire banking powers of 
the United States were to be concen- 
trated in the executive oflScers (pri- 
vate persons), who would be located 
in New York City, and this power 
would be sufficient to coerce every 
member bank and large business in 

It was desirable, on the contrary, 
that the control of the system should 
be in the hands of the Government 
of the United States, and, second, 
that the reserve centers should be 
distributed and not concentrated in 
one city where a small clique could 
control the system. 


2. So long as the Reserve Associa- 
tion issued its own bank notes it fol- 
lowed as a corollary that the Associa- 
tion would control its own notes as 
it saw fit, and thereby could control 
the currency of the country and 
thereby control the credits of the 
coxintry regardless of the will of the 
American people, since the Govern- 
ment under the proposed would not 
have been in control. The measure, 
however, did have some valuable 
features; it did provide for the 
gradual retirement of the national 
bank notes. 

It did provide for acceptances, do- 
mestic and foreign. 

It did provide for a currency which 
was elastic and would accommodate 
itself to the demands of commerce 
(always provided the gentlemen in 
control permitted it) . 



But, it was a Central AU-ControUing 
Bank in Private Hands. 


OF 1913 

In the fall of 1912 Hon. Woodrow 
Wilson was elected President of the 
United States upon a platform oppos- 
ing a central bank, favoring the tak- 
ing of the banking business out of 
the control of the so-called "money- 
trust" or "credit trust" whose ex- 
istence had been demonstrated by 
the Pujo investigation, and declaring 
the doctrine 

''Banks exist for the accommodation of 
the public and not for the control of business. 
All legislation on the subject of banking and 
currency should have for its purpose the 
securing of these acconmiodations on terms 
of absolute security to the public and have 
complete protection from the misuse of the 



power that wealth gives to those who pos- 
sess it." 

As I had given this matter careful 
study in 1898 and had called the at- 
tention of the country to the methods 
by which Great Britain, Germany, 
France, and other countries protected 
their business people against finan- 
cial panic and by which they stabil- 
ized business credits, and had elabo- 
rately set these principles forth in the 
Senate in February, 1908, I desired 
to be able to write these principles 
in the statutes of the United States, 
and I therefore initiated a deter- 
mined movement to reorganize the 
Democratic party control of the 
United States Senate and among 
other things to have myself put at 
the head of a Committee on Banking 
and Currency, in order that I might 
have the opportunity of framing the 



Federal Reserve Act along sound 
lines free from selfish interests. 

The Senate was reorganized ac- 
cordingly; there was formed a Com- 
mittee on Committees, of which I 
became a member, the Conomittee 
on Finance was divided, the Com- 
mittee on Banking and Currency 
established, I was made Chairman 
of this Committee, and immediately 
organized a sub-Committee to study 
this question in co-operation with 
the Committee of the House, which 
was giving attention to this question 
at the same time. 

During the preceding winter 
(1912-13), Hon. Carter Glass, Chair- 
man of the Conunittee on Banking 
and Ciurency of the House of Rep- 
resentatives, had given this matter 
vigorous attention, and had made a 
preliminary draft which he had sub- 



mitted to President-elect Wilson. I 
was advised that this draft had met 
with the tentative approval of the 
President. Mr. Glass gave me a copy 
of his draft and his notes thereon 
which I have preserved. I, too, made 
a draft incorporating the principles 
I had advanced in 1908, and these 
two proposals became the basis of 
discussion in framing the Federal 
Reserve Bill which finally became the 
Federal Reserve Act. 

The Glass tentative draft avoided 
the establishment of a central bank 
with branches, and provided twenty 
Federal Reserve district banks under 
control, however, of a Federal Re- 
serve Board, with forty out of 


Section 10 of this draft provided 
for a Federal Reserve Board, con- 



sisting of forty members chosen by 
the member banks and their stock- 
holders, and the Secretary of the 
Treasury, the Comptroller of the 
Currency, and the Attorney-General 
of the United States. Mr. Glass, 
however, proposed to amend this 
draft to alter this provision so that 
the Federal Reserve Board should be 
selected by the directors of the Na- 
tional Reserve banks, the directors of 
the Federal Reserve banks being 
selected by the member banks and 
their shareholders, either directly or 

I was strongly opposed to either 
provision because it would not give 
to the United States control of the 
system. In effect this control of the 
system I regarded as practically the 
same as the Aldrich Bill, which 
would have put the management of 



the sjsrstem in the hands of persons 
chosen to represent the banks, and I 
insisted that the control of the system 
was a governing function to be exer- 
cised alone by the Government of the 
United States. About this feature I 
felt great anxiety, because a power- 
ful impression had been created that 
the banks of the coimtry would not 
enter a Govemment^ontroUed sys- 
tem, would not take stock in the 
reserve banks, and would not put 
their reserves in the reserve banks 
unless they could control the Federal 
Reserve Board. 

Their representations with regard 
to this had made a serious impression 
on Mr. Glass and on others in au- 

Mr. Glass and myself discussed the 
matter very freely and fully, but 
could not reach an agreement. As 



far as he felt it safe to go was to have 
a Federal Reserve Board of seven, 
four members of which were to be 
chosen by the Government and three 
by the banks. 

Upon this vital difference we de- 
termined to appeal to the President. 
We had a hearing one night at the 
White House, in the Cabinet Room, 
Mr. Glass urging his view and I 
pressing the proposal that the Gov- 
ernment should control the appoint- 
ment of every member of this Board. 
After a discussion of two hours, ap- 
proximately, the President coincided 
with my contention that the Govern- 
ment shoidd control every member of 
the Board on the ground that it was 
the function of the Government to super- 
vise this system and no individual^ 
however respectable, should be on this 
Board representing private interests. 



Secretary McAdoo was present at 
tliis interview and agreed with the 
view which I presented. 

When, shortly afterwards, it be* 
came apparent that the banks would 
not be able to refuse to enter the 
system because of this provision, Mr* 
Glass gave it a very cordial support,^ 
and when we introduced a bill iden- 
tical in terms in the Senate and in 
the House this Government control 
was provided for (S. 2639. H. R- 

I had printed for the use of the 
Senate explanatory notes and in con- 
nection with the section providing 
for the Federal Reserve Board I 
answered the objection of the Amer- 
ican Banking Association to Govern- 
ment control. I pointed out that the 
directors of the Reichsbank of Ger- 
many were appointed by the Govem- 



ment and not by the stockholders of 
the bank, and that the Bank of 
France had its managers, governors, 
and sub-governors appointed by the 
Government of France. 

The Glass draft. Section 21, fol- 
lowed the Monetary Conmiission 
Bill and provided that all moneys of 
the general fund of the Treasury 
should, after six months, be deposited 
in the National Reserve banks and 
disbiu*sed through such banks. 

This I was unwilling to agree to, 
believing that the Government 
should retain complete control of 
its receipts and disbiu-sements as a 
further check on the reserve banks 
by the Government. 

On this point I received valuable 
suggestions from Hon. Geo. H. Shib- 
ly, who briefed the case for me. 

The Reserve Act preserved the in- 



dependence of the Treasury in ac- 
cordance with my contention. 

Section 23 of the original proposal 
^ by Mr. Glass authorized the National 
Reserve banks to receive from the 
Federal Reserve Board Federal Re- 
serve notes, but these notes were to 
be the bank notes of the Federal Re- 
serve banks as in the Monetary Com- 
mission Bill, and not the notes of the 
United States Government. 

I objected to this provision, insist- 
ing that the notes should be United 
States Treasury notes and treated as 
such, for the reason that in this way 
the United States Government would 
be able to control these notes and the 
banks would not be able to control 
them, and Senate Bill 2639, and 
House Bill 6454, introduced June 26, 
1913, by Mr. Glass and myself, made 
such notes the obligations of the 



United States, to be issued at the dis- 
cretion of the Federal Reserve Board 
solely for the purpose of making ad- 
vances to Federal Reserve banks 
(Section 17). 

On this point I had the active as- 
sistance of Hon. W. J. Bryan, Secre- 
tary of State. 

Between June and September 
many discussions took place with re- 
gard to this bill. Finally, on Au- 
gust 29, 1913, Mr. Glass reintroduced 
the measiu-e of H. R. 7837, and re- 
ported it September 9, 1913, and it 
passed the House September 18th. 

On the 2d of September, 1913, an- 
ticipating the passage by the House 
of this Bill, I opened the hearings in 
the Senate upon H. R. 7837, before 
the Committee on Banking and Cur- 
rency, so that the Bill if amended 
would be amended as the matter of 



the House Bill, it being the same as 
Senate 3099, which I had introduced 
on September 9, 1913, and thus sev- 
eral weeks' time saved in its parlia- 
mentary management. 

It resulted in a substitute bill 
which after conference became The 
Federal Reserve Act. 

The hearings on this bill before the 
Senate Committee filled three large 
volumes of 3,259 pages, and were not 
concluded until October 27, 1913. 

The Committee made very resolute 
efforts to ascertain as fully as possible 
the views of bankers and business 
men with regard to this bill. 

The most distinguished bankers, 
business men and financiers in the 
coxmtry gave the Committee their 
views, some of which were very use- 
ful in refining the Bill. 

I spent days in New York discuss- 



ing this measure with leading bank- 
ers in order to be thoroughly assured 
of their point of view and not to omit 
any suggestions of value or to insert 
in the bill any provisions which 
would be injiu-ious either to the banks 
or to our business people, but, as I 
explained to them, I was considering 
the matter as a public servant from 
the standpoint of the interests of the 
people of the United States, of the 
manuf actiu'er and merchant and pro- 
ducer and consimier, and not from 
the standpoint merely of the banker. 

On one occasion I spent the entire 
day from nine o'clock in the morning 
imtil nine o'clock at night talking to 
the Legislative Committee of the 
American Bankers' Association in 
New York City. 

I recall spending seven consecutive 
hours discussing with Mr. Paul War- 



burg the question of whether the Re- 
serve notes should be the notes of the 
United States Government or bank 
notes, he taking the position that 
they should be notes of the Federal 
Reserve banks and not United States 
Treasury notes, he contending that 
these notes would be the obligations 
of the United States and would 
weaken the credit of the United 
States when the United States came 
to borrow money from the banks or 
from the people. I took the position 
that the currency of the coimtry 
ought to have behind it the taxing 
power of the nation, that the United 
States should control the currency, 
and that private persons should not 
control the currency, and that the 
Treasury notes would mobilize cap- 
ital so that it would be easier for the 
Government to negotiate its loans 



with such notes operating as a me- 
dium for transfer of credits conven- 
iently through the banks which would 
be stabilized by this system. 

Mr. Warbiu^g supported the prin- 
cipal proposals of the Aldrich Central 
Bank plan and opposed those of the 
Federal Reserve Act (North Amer. 
Rev., Oct., 1913, p. 527). 

On December 13, 1913, Senator 
Root proposed to amend Section 16 
and make the Federal Reserve notes 
"bank notes," and he denounced the 
Federal Reserve notes because they 
were the notes of the United States 
Government, and said that the Act 

**Is authority for the increase, practica]ly» 
of what we call greenbacks," 

and urged that the Federal Reserve 
notes were unsound and extremely 



He contended that it meant not 
elasticity, but uncontrolled expansion^ 
and said, 

"It provides a currency which may be 
increased, always increased, but not a cur- 
rency for which the Bill contains any pro- 
vision compelling reduction." 

I pointed out on December 15, 
1913, in my reply to Mr. Root {Cong. 
Rec.y 899) that these notes could not 
expand or remain expanded beyond 
the requirements of oiu* commerce, 
because, unless a bank needed cur- 
rency, it would not call for these 
notes, and as soon as the need for 
currency was past the bank would 
return the currency to the Reserve 
Bank and the Reserve Bank would 
return such currency to the Federal 
Reserve agents. The automatic re- 
demption of these notes is expressly 
provided for in the Act. The ex- 



tent of this issue was absolutely in 
the control of the authorities of the 
United States Government, and the 
fact that these notes were available 
everywhere has enabled the people of 
the United States to meet the present 
demands of the Government of the 
United States(1918) for gigantic bond 
issues and enormous taxes required 
in the greatest war of all history. 

That these notes should not be dis- 
credited as unsound I made clear at 
that time by pointing out the various 
safeguards to these notes and their 
vaUdity and that the following se- 
curities were* behind these notes: 

First, A short-time promise-to-pay 
of a business man in good standing, 
based on commodities and for which 
his entire fortune was responsible. 

Second, The endorsement of a 
member bank in good standing. 



Third, The stock of such bank in 
the Federal Resersre bank. 

Fourth, The reserve balance of 
such member bank in the Reserve 

Fifth, The double liability of stock- 
holders of the member bank endors- 
ing the note. 

Sixth, The capital and surplus of 
the Federal Reserve bank obtaining 
the note. 

Seventh, A minimum gold reserve 
of forty per cent, behind such notes. 

Eighth, The liability of member 
Danks for the obligation of its own 
Federal Reserve banks. 

Ninth, The double liability of 
stockholders of all member banks. 

Tenth, The mutual liability of all 
Federal Reserve banks for the debts 
of one another. 

Eleventh, The taxing power of the 



people of the United States to meet 
the obligations of the United States. 

No such line of securities was ever 
provided for any note issue in the 
history of the world. These notes 
have not expanded beyond the actual 
requirements of commerce, and the 
expansion is absolutely within the 
control of the Government of the 
United States. 

The present assets of these banks 
exceed five thousand million dollars. 
The Federal Reserve notes in circu- 
lation amount to $2,562,517,000, se- 
cured by $1,146,646,000 in gold held 
jointly by the Federal Reserve banks 
and Federal Reserve agents, and 
$2,116,238,000 in commercial paper 
not including the other assets of the 
Federal Reserve banks. In addition, 
the Federal Reserve Board holds a 
gold settlement fund of $433,885,000 



belonging to the Federal Reserve 
banks. (November 15, 1918.) Total 
gold reserves, $2,056,777,000. 

In the October, 1913, North Amer- 
ican Review^ p. 567, 1 said of the pro- 
posed system, "It will give the 
United States the most gigantic and 
masterful system of the world.'* The 
stress of the great European war has 
demonstrated the correctness of this 

A serious contention over this Act 
turned upon the question : 

1. Should there be a central bank.^ 

I voiced the opinion of those who 
desired the banks to be distributed 
throughout the United States in dis- 
tricts independent of one another, but 
joined together so as to be co-opera- 
tive without the dominance of one 
by the other. Twelve banks were 



i. Another vital issue was who 
should control this system — the 
banks or the people of the United 
States? I steadily insisted that the 
control of the banking system of the 
United States was a governing func- 
tion and should be controlled by the 
representatives of the people of the 
United States and should not be 
controlled by private persons, what- 
ever their respectability. The sys- 
tem was put under Government con- 

3. It was contended, as by Mr. 
Warburg, that these notes should be 
the notes of corporations instead of 
notes of the United States. I firmly 
insisted that these notes should be 
the notes of the United States under 
the control of the Government and 
based on the taxing power, and that 
when these were loaned to the banks 



they should be adequately secured by 
gold in fixed ratio and by United 
States bonds or commercial bills. 
The Federal Reserve notes were 
made Government notes. 

4. Some wished one bank, or as 
few as possible; others, from eight to 

In my own Committee I was con- 
fronted with the most serious diver- 
gences of opinion with regard to some 
of these vital questions, and found it 
desirable at last to take the bill before 
the Democratic Conference. It was 
there discussed for about three weeks, 
in which I defended the points in the 
bill for which I stood, finally receiv- 
ing the approval of the Democratic 
Conference and being sustained, as 
far as I now recall, on every vital 
point in the bill. It passed the Sen- 
ate, was submitted to Conference, 



and in an acceptable form was re- 
ported as a substitute for the House 
Bill on December 19, 1913; was sub- 
mitted to conference and became a 
law, and received the approval of the 
President on December 23, 1913, 
"As a Christmas gift to the Amer- 
ican people." 

The changes of importance made 
by the Senate in the bill, as it passed 
the House, are shown in a special 
print of December 1, 1913, in the 
Senate of the United States. 

The number of Federal Reserve 
banks permissible was increased from 
ten to twelve. The national banks 
were required, and the state banks 
and trust companies were permitted, 
to become members. The - share- 
holder of every Federal Reserve bank 
was made responsible equally and 
ratably, and not one for another, 



for all contracts, debts and engage- 

National banks failing to signify 
their acceptance within sixty days 
were forbidden to act as Reserve 
agents, and those failing within a year 
to become members were required to 
surrender their charters. The iisual 
charter rights were granted to the 
Reserve banks. The six directors of 
each Federal Reserve bank to be 
chosen by the member banks were 
required to be elected on a plan which 
I framed by a preferential baUoty 
which automatically coheres a ma- 
jority of those voting on one ballot 
and prevents the need of succeeding 
elections to obtain a majority vote. 
The three Government directors, in- 
cluding the Federal Reserve agent, 
are appointed by the Federal Reserve 


It was expressly provided in the 
Act as amended that nothing in the 
Act should be construed as taking 
away any powers vested by law in the 
Secretary of the Treasury which re- 
late to the supervision, management, 
and control of the Treasury Depart- 
ment and Biu-eaus under such De- 

This was thought necessary to pre- 
vent a possibility of interference with 
the functions of the Treasury. The 
Comptroller of the Ciu'rency was put 
in charge of all Federal Reserve notes. 

The reserves of the member banks 
were by the Act and the amendments 
of June, 1917, subjected to a gradual 
change, so that after three years the 
reserves in country districts were put 
at seven per cent of its demand de- 
posits and three per cent of its time 
deposits. In a reserve city, at ten 



per cent of its demand deposits and 
three per cent of its time deposits. 
In central reserve cities, at thirteen 
per cent of its demand deposits and 
three per cent of its time deposits, 
to be carried with the Federal Re- 
jserve banks, leaving the member 
banks at liberty to carry such addi- 
tional reserves as they may see fit. 

Previously to the passage of the 
Reserve Act a large part of the so- 
called reserves in country banks and 
in reserve cities were not available in 
actual cash, but were held as open 
accounts in city banks with other 
reserve agents, and were not avail- 
able in times of stringency. 

An important proposed amend- 
ment in Section 13 was to authorize 
a Reserve bank to discount accept- 
ances based on domestic shipment 
x>i goods, as well as imports and ex- 



ports up to one-half of the paid-up 
capital stock and surplus of the bank 
for which the rediscounts were made, 
and to authorize any national bank to 
accept drafts or bills of exchange 
drawn upon it growing out of do- 
mestic shipments of goods having not 
more than six months' sight to run* 
This provision was at that time, how- 
ever, disapproved by the Secretary 
of the Treasury, and the House Com- 
mittee rejected it in conference. I 
was much disappointed by this defeat 
of domestic acceptances. 

At a later date, September 7, 1916, 
it was inserted in the Federal Reserve 
Act, so that now national banks can 
issue acceptances on domestic ship- 

At the time of the passage of the 
Federal Reserve Act the Secretary of 
the Treasury disapproved of permit- 



ting the Federal Reserve banks to 
exchange Federal Resersre notes for 
gold, but under the provision that 
a Federal Reserve bank may at any 
time reduce its liability for out- 
standing Federal Reserve notes by 
depositing gold with the Federal 
Resersre agent, the banks did accom- 
plish this in fact by exchanging the 
Federal Reserve notes for gold and 
depositing the gold with the Federal 
Reserve agents, which had the effect 
of placing to their credit with the 
Federal Reserve agent gold against 
Federal Reserve notes emitted 
through them. 

Afterwards this was changed so 
that the Federal Resersre banks were 
permitted directly to exchange Fed- 
eral Reserve notes for gold, and in 
this way they have added hundreds 
of millions of dollars to the gold avail- 



able behind the Federal Reserve 
notes. I strongly stood for this gold 
concentration in the Reserve Bank 

When the Federal Reserve Act 
was signed I was given a copy of 
the Act on vellum, in duplicate, 
with the signatures of the Govern- 
ment oflScials participating in the Act. 

The President presented me with 
one of the gold pens with which he 
signed the Act, and wrote me the 
following letter : 

"The White House 

" December es, 191S. 


Hon. Robert L Owen, 
United States Senate, 
Washington, D. C. 

" My dear Senator : 

"Now that the fight has oome to a suc- 
cessful issue, may I not extend to you my 



most sincere and heartfelt congratulations, 
and also tell you how sincerely I admire the 
way in which you have conducted a very 
difficult and trying piece of business? The 
whole country owes you a debt of gratitude 
and admiration. It has been a pleasure to 
be associated with you in so great a piece of 
constructive legislation. 

"Cordially and sincerely yours, 

"WooDROW Wilson.** 

The main principles of the Federal 
Reserve Act are (1) the issuance 
of elastic currency. Treasury notes, 
supported by a large gold reserve, 
and by sound commercial credits and 
banking credits; (2) issued and con- 
trolled by the Government, (3) easily 
available to banks and to business 
men, (4) under an interest charge to 
prevent inflation by compelling con- 
traction, (5) distributing bank re- 
serves in twelve banks to serve com- 
merce instead of concentrating them 



in New York to serve the Stock Ex- 

This in eflfect puts behind the indi- 
vidual credit of the farmer, merchant^ 
manufacturer, shipper, and business 
man the credit of the United States, 
and furnishes him with elastic cur- 
rency whose vaKdity cannot be ques- 
tioned, in exchange for his own notes, 
enabling him to meet his current ob- 
ligations without diflSculty and pro- 
viding an ever-present supply of 
sound currency for business needs. 

It gives assurance to the business 
men of the country that they never 
need fear a currency famine. 

It assures them absolutely against 
the danger of financial panic, due to 
hoarding of currency or sudden de- 
nial of legitimate credit. 

It does not promise them protec- 
tion against waste, improvidence, or 



carelessness in conducting business; 
it does not protect them against over- 
production or under-consumption; it 
does not give complete protection 
against industrial depression, which 
may be due to these causes or to other 
causes. The protection of the country 
against industrial depressions is very 
largely safeguarded by this Act, but 
other steps by Government are es- 
sential if industrial depression in 
the future is to be entirely avoided. 
This is another story — ^the story 
of reconstruction, of stabilizing in- 
dustry and commerce by added safe- 
guards and the regulated constant 
employment of labor. 

The management of the Federal 
Reserve banks by the six directors 
elected by the member banks and the 
three directors chosen by thfe Govern- 
mentally controlled Federal Reserve 



Board has proven satisfactory to the 
Government and to the country. 

The refinements of the Federal Re- 
serve Act were brought about by the 
co-operation of a great many able 
men who participated in the delib- 
erations whose names and evidence 
will be found in the hearings of the 
two Conunittees. After Mr. Glass 
and myself introduced the bill in 
June, 1913, it received altogether 
over eight hundred amendments, 
nearly all of which related merely to 
language and punctuation, the chang- 
ing of words back and forth, and 
matters of that character, which were 
unimportant. Hon. Carter Glass 
was entitled to very great credit for 
his able and admirable work on this 
measure. The members of the Com- 
mittees on Banking and Currency of 
the United States Senate and House 




of Representatives gave it the most 
assiduous attention from April to 
December 23, 1913, and are entitled 
to the highest measure of praise. 

I am especially grateful to Hon. 
Henry F. Hollis (N. H.), to Hon. 
John Shafroth (Col.), and to Hon. 
Atlee Pomerene (Ohio) of the Com- 
mittee for their valuable services. 

The bill had the sympathetic sup- 
port and earnest co-operation of 
President Wilson, of Secretary Bry- 
an, of Secretary McAdoo, and Hon. 
John Skelton Williams, the assistance 
by suggestion of many prominent 
bankers and business men, and from 
time to time has been amended since, 
as experience has shown how it may 
be improved in its mechanism and 
operation. I particularly appreci- 
ated the valuable assistance of Hon. 
Samuel Untermyer of New York, 



who gave me many useful sugges- 

The expansion of the Federal Re- 
serve banks under this Act has sur- 
prised and delighted the country. 

Except for this Act the United 
States could not have adequately 
financed this war, and the Govern- 
ment of the United States would have 
faced a serious panic at the beginning 
of the war. 

On the final passage of the Act in 
the Senate, 47 Democratic Senators 
voted for it, none against it, while 7 
Republican Senators voted for it and 
34 voted against it: 

In the House of Representatives 
248 Democrats voted for it and only 
one against, while 38 Republican 
members voted for it and 85 Repub- 
lican Representatives voted against 



Nearly all of the Republicans 
voted for amendments suggested by 
the Central Bank Bill of the Mone- 
tary Commission, but every one of 
these hostile amendments was de- 
feated in the Senate and in the 

Hon. John Skelton Williams, 
Comptroller of the Currency, in a 
public statement recently said, in 
regard to the Federal Reserve Act : 

"Every business man, banker and 
capitalist knows what it is and what 
it has done. It is the best financial 
system the world has ever seen. It 
has made this Nation and Govern- 
ment an impregnable financial force 
and the strongest the mind of man 
has devised. • • • That one meas- 
ure WON THE WAR. It enabled our 
finances to endure, without a quiver, 
every shock and strain. It gave us 



the power to help our allies instantly 
and without stint when their need 
was sorest, with a help most needed." 

The opportunity to take part in 
framing this Act I have deeply ap- 
preciated. I am glad to yield to the 
suggestions of various friends and 
dictate this short reminiscence. 

I hope the little volume may prove 
of value in making the simple prin- 
ciples of the Reserve Act more clear: 
1. A quick supply of elastic money , 

easily available; 
i. Under Government control; 
S. Secured by gold, commercial 

bills and U. S. bonds; 
4. Under an interest charge to 
compel contraction and pre- 
vent inflation. 

RoBEBT L. Owen. 
Nov. 16, 1918. 







Rbsoubcbs November is* i9z8 

Gold in vault and in transit. . . . I375.527.000 
Gold settlement fund* P. R* 

Board 433> 

Gold with foreign agencies 5,829,000 

Total gold held by banks. . 815.241.000 
Gold with P. R. Agents. . z,ii6, 
Gold redemption fund 

Total gold reserves I2.056.777.000 

Legal-tender notes, silver, etc. . • 53*039.000 

Total reserves 12,109,816.000 

Bills discounted: Secured by 

Govt, war obligations ll,3S8,532,ooo 

Bills discounted: All other.. . . . 439,276.000 
Bills bought in open market. . . 

Total bills on hand |a,i75.685,ooo 

U. S. Government long - term 

securities 39,478,000 

U. S. Government short - term 

securities 93» 

All other earning assets 28,000 

Total raming assets 3.298,640,000 

Uncollected items (deduct from 

gross deposits) 

5% Redemption fund against 

P. R. bank notes 4,008,000 

All other resources 18,169,000 

Tclal Resources fs. 148*418,000 




Capital paid in $79,903,000 

Surplus 1.134,000 

Government deposits f 346,401,000 

Due to members — ^Reserve acct. 1,449,949,000 

Collection items 573.737,000 

Other deposits, including foreign 

Government credits 113,385.000 

Total gross deposits. $3,383,463,000 

P. R. notes in actual circulation 3,563,517,000 
P. R. bank notes in circulation, 

—net liability 72,930,000 

All other liabiUties 48,473,000 

Total Liabilities 15,148,418,000 

Ratio of total reserves to net de- 
posit and P. R. note liabili- 
ties combined 49.9% 

Ratio of gold reserves to P. R. 
notes in actual circulation af- 
ter setting aside 35% against 
net deposit liabilities 59.6%